Compulsory purchase date controls capital gains timing; later arbitration on compensation does not postpone transfer.

In a compulsory purchase under the Indian Electricity Act, the date of transfer for capital gains purposes is the date possession is taken and the purchase is effected. Later arbitration fixing compensation only determines the fair market value as on that date and does not postpone the sale. On that basis, where the purchase was completed before section 12B of the Indian Income-tax Act, 1922 came into force, the later receipt of quantified compensation was not taxable as capital gains for the relevant assessment year.

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Issues: Whether the amount received on compulsory purchase of the undertaking was liable to capital gains tax under section 12B of the Indian Income-tax Act, 1922 for the assessment year 1961-62, having regard to the date on which the sale was completed.

Analysis: The transfer arose from the State Government's option to purchase under section 5(d) of the Indian Electricity Act, 1910, and possession was delivered on 3 May 1944. The price ultimately fixed by arbitration was only the determination of the fair market value as on the date of purchase, as contemplated by the proviso to section 5(b). Since the purchase was completed in 1944, before section 12B came into force, the later quantification of compensation did not postpone the date of sale or create a taxable capital gain in the assessment year 1961-62.

Conclusion: The receipt was not liable to tax under section 12B of the Indian Income-tax Act, 1922, and the question was answered in favour of the assessee.

Ratio Decidendi: In a compulsory purchase, the date of sale is the date on which possession is taken and the purchase is effected, while later arbitration fixing compensation only determines the market value as of that date and does not postpone the transfer for capital gains purposes.

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